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Common tax mistakes that businesses make

Posted on July 22, 2020 by admin

Meeting tax obligations as a business owner can be stressful and potentially expensive if done wrong. Certain mistakes warrant severe action, so you can expect the ATO to take a closer look at them if you’ve failed to identify these errors before lodging tax returns for your business. Most mistakes made with regards to tax filing often revolve around poor administrative knowledge of tax laws. Ensure that you are aware of potential mistakes you could be making that might cost you your business.

Inconsistent declarations

The ATO gathers data from numerous businesses across a particular industry to create a benchmark showing a band of percentages within which businesses in that industry should typically fall under. Businesses that fall outside this band can expect delays and a closer look from the ATO inspecting reasons for inconsistencies within your business’ declarations. However, these can also be sources of mistakes from the ATO’s part as some inconsistencies can be very real – such as demographics or personal situations – that can cause variations in data. Ensure that you are declaring all your sales, and that any inconsistency can be justified to the ATO.

Poor bookkeeping

A majority of tax mistakes committed by small businesses revolve around poor bookkeeping. Businesses are required to maintain all financial transactions made – but forgetting to put the purchase through the register or taking money out of the register for personal use without replacement of the difference can show varying cash register tapes that can be problematic when filing your tax returns. You may be missing out on valuable tax credit claims by not keeping proper records of your financial transactions.

Employee payments

Businesses may assume that superannuation payments need not be made if they are employing subcontractors. This can be an expensive mistake, as if the worker has standard hours and is expected to work consistently for your business under your direction, they need to be treated as employees. Businesses may leave superannuation guarantee payments until the end when cash flow becomes restricted – but avoid late lodgements to prevent penalties from the ATO.

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Getting your money back from late-paying customers

Posted on July 29, 2020 by admin

Businesses can be heavily impacted by customers who cannot, or simply will not pay when payment is due. A single unpaid invoice can cause issues, and the longer this debt is left uncollected, your chances of getting your money back become slim. Consider these tips to avoid and manage debt recovery to save your business from major losses.

Reduce credit terms
If late payments and managing bad debt is a regular occurrence, consider reducing your credit terms. You may want to remove your credit terms entirely, but it is important to look at your customer base, the services you offer, and whether there is an average credit term that is expected by your clients. If you offer credit terms shorter than your competitors, you may end up losing valuable customers. However, if your credit terms are too spacious, your cash flow will be slow, putting you at financial risk.

Encourage timely payments
Your business might require a set credit term to meet the industry average. In these situations, consider offering discounts on payments made early or within a set date from invoicing. An alternative is to charge a late fee to encourage your clients to pay on time. In these situations, it is necessary to first make your customers aware of the introduction of this policy clearly through your terms and conditions. To maintain good customer relationships, try to limit overdue fees to repeat offenders. You may want to monitor incoming payments to see if these policy changes are reducing your late payments.

Hire a debt collection agency
Efforts to pursue your late-paying customers may not always be successful. If the debt amount is less than $1000, it may not be financially viable to pursue legal action for violation of your credit terms. In such situations, consider outsourcing your debt collection to professional collectors. However, timely involvement is key to getting your money back. Give your clients sufficient time to make a payment, and if over two times the trading terms have passed, hire a collection agency to prompt your clients into making defaulted payments.

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